INTERNET: Alibaba Samples Food at Home, Offloads US Site

Bottom line: Alibaba’s decision to sell one of its early US e-commerce sites just a year after the launch looks smart and decisive for new ventures that aren’t performing well, while its new China-based dining services site will face stiff competition.

Alibaba tries dining services with Koubei

Acquisitive e-commerce leader Alibaba (NYSE: BABA) is throwing up a rare white flag of surrender in the US, selling off its 11 Main site just a year after launching the e-commerce platform. That surrender looks relatively minor, as Alibaba never really gave the site much time to develop. But the quick decision to call it quits reflects the challenges Alibaba will face as it tries to show investors that it can be competitive outside its home China market, which will be critical to its future growth.

Meantime, Alibaba was in another separate headline that looks much more typical for the company, announcing a new mega tie-up worth nearly $1 billion that will take it into the dining services category. That initiative looks squarely aimed at Dianping, often called the Yelp (NYSE: YELP) of China, and Dianping’s major backer Tencent (HKEx: 700).

Let’s jump right in with the 11 Main story, not because it’s a very big deal in size but more because it reflects how Alibaba might act as it moves into unfamiliar global markets where its chances of success are far from guaranteed. According to the headlines, Alibaba has sold its 11 Main site to a rival marketplace operator called OpenSky. (English article; Chinese article) In exchange, Alibaba will become a minority owner of OpenSky with a 37 percent stake of the company.

Alibaba never seemed too sure what it was doing with 11 Main, announcing the site’s launch in February last year without giving much detail except to say it would be a niche marketplace selling items from a select group of shop owners. (previous post) A report on the sale of 11 Main quotes one former worker saying the site felt “amateur”, and that she left after just a month due to its many requirements.

Alibaba’s decision to quickly hand over 11 Main to a local partner contrasts strongly with its other major overseas experience in Japan, where it struggled for several years before closing a local version of its Taobao C2C site 3 years ago. (previous post) This kind of decision is never easy, and obviously a new venture often needs time to find its audience. But if I had to choose between a quick death and a slow painful one for such a new venture, I would choose the former. Thus I applaud Alibaba for making this move sooner rather than later, even in the face of the inevitable negative publicity it will receive.

Next let’s look at the other news that’s far more typical of Alibaba, and involves a major new investment into the dining services space with its financial services affiliate Ant Financial. Under the deal the pair will plow 3 billion yuan ($480 million) each into Alibaba’s existing Koubei dining services site. (English article; Chinese article) The 2 sides will each own 50 percent of Koubei, which was already existent but largely dormant before this latest move.

Koubei competes with both Dianping, which rates restaurants and provides coupons, and the popular food delivery site Ele.me, which received an investment worth tens of millions of dollars from Dianping last year. (previous post) Ele.me’s trademark bicycles with their food pouches on the back are a regular fixture in my home of Shanghai, testifying to the popularity the service has attained in its brief lifetime. Tencent also invested later in Ele.me, and is itself a big investor in Dianping. (previous post)

This latest move by Alibaba looks a bit late, and comes well outside of its main comfort zones of traditional e-commerce services. But dining services is certainly a type of retail and Alibaba has the money to make a serious play for the market. It will certainly face an uphill climb due to Dianping’s and Tencent’s earlier start in the market, and therefore I would only give this new venture a 20-30 percent chance of success.

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